Rainy Days and Real Numbers: How Much Cash Should Be in Your Emergency Fund?
Life loves to throw curveballs. Your car breaks down, your dog eats a pair of dirty underwear and needs surgery, your tooth decides to rot, and so on. Having a 3–6-month emergency fund is mandatory if you are going to achieve financial freedom. With an emergency fund, a surprise bill feels like a papercut, annoying but not horrible. Without one, it's like a chainsaw accident, where you are gushing blood and panicking.
Let's look at some spicy stats:
42% of Americans do not have any emergency fund.
37% of Americans can not cover a $400 unexpected expense, and stated they would need to borrow, sell something, or simply couldnt pay the bill.
This is bad news for 42% of Americans.
Let's continue to hammer the number of things that can become emergency expenses, so it helps motivate you to start one.
Car Repairs: Flat tires, tow truck
Medical bills: ER visits, urgent care
Job loss: Layoff, reduced hours
Home repairs: Leaky roof, dead appliance
Pet Emergencies: Reference underwear example above
Travel for family emergencies: Last minute flights
Unexpected moves: Eviction, lease ends
Legal expenses: Traffic tickets
Technology failures: Broken iPhone, dead laptop
Natural Disasters: Think flooding damage without flood insurance
How much cash should be in your emergency fund?
Since you are a loyal Betternance reader, you already have a budget. Congrats. If your monthly expenses on average are $4,000, you should have $12,000 - $24,000 sitting in an easily accessible bank account ready to be deployed in the event it's needed. You can also consider dumping it into a high yield savings account like Betterment and earn some money while it sits there.
The important part is that A) You have the money B) It's accessible.
Prioritize securing your emergency fund today and avoid the stress and uncertainty when the unknown arrives.